29 September 2018

Looking at the scale of social and environmental problems that mankind faces, you might think that we don't have the resources necessary to make fundamental changes in the way we operate. Changes such as eliminating extreme poverty, improving health outcomes, dealing with environmental problems, and reducing violent political conflict. The good news, though, is that we are not short of funds to address these, and other, challenges.
Brooke Harrington in Capital without borders, writes about people working in the wealth management industry:

Their work radically undermines the economic basis and legal authority of the modern tax state.... Using trusts, offshore firms, and foundations, professionals can ensure that inequality endures and grows in a way that becomes difficult to reverse short of revolution. Brooke Harrington, Capital without borders, September 2016

And then there is corporate welfare. Nathan Jensen writes, about the US:

Every year, states and local governments give economic-development
incentives to companies to the tune of between $45 billion and $80
billion. Why such a wide range? It’s not sloppy research; it’s because
many of these subsidies are not public. Do Taxpayers Know They Are Handing Out Billions to Corporations? 'New York Times', 24 April

People are behaving perfectly rationally given the incentives on offer. In most cases they are behaving perfectly legally too. But the result, from an ordinary person's point of view is a massive misdirection of resources into activities that are destroying our social and physical environment. We have greed - otherwise known as self-interest - and we have untold wealth. It's my contention that we could solve the world's problems without having to rely on changing human nature, by redirecting our greed and that wealth into unambiguously useful activities.

The vehicle by which we could do this is the Social Policy Bond. The idea is that Social Policy Bonds direct self-interest into achieving socially beneficial outcomes. Governments don't have to try to work out how to achieve these outcomes, nor who shall be charged with doing so. It is the self-interest of bondholders that ensures that resources flow only the most efficient ways of achieving our goals.With just a little bit (relative to the magnitude of the problems at hand) of tinkering, we can substitute 'our goals' meaning humanity's goals, for those individual and corporate goals, the pursuit of which is not only diverting resources from more useful activities, but is actively undermining our chance of survival. Social Policy Bonds would channel our self-interest into the achievement of these goals. It would seem to be safer and more humane to do issue Social Policy Bonds and give greed the chance to solve our problems, than to carry on as we are and hope that the revolution Ms Harrington fears turn out not to be catastrophic.

21 September 2018

In 2017, the U.S. Preventive Services Task Force...found that the decisive factor in obesity care was not the diet patients went on, but how much attention and support they received while they were on it. Participants who got more than 12 sessions with a dietician saw significant reductions in their rates of prediabetes and cardiovascular risk. Those who got less personalized care showed almost no improvement at all. Everything You Know About Obesity Is Wrong, Michael Hobbes, 'Huffpost', 19 September

Markets can't readily capture things like 'personalised care', so our political system gives them little weight. Yet they prove to be crucial in determining not only meaningful outcomes like physical and mental well-being, but also more measurable quantities, such as morbidity; elements of which can be monetarily valued. Just as reducing crime doesn't - or shouldn't - mean simply giving more cash to police forces, so improving a nation's health shouldn't just mean dispensing spending more on doctors, hospitals, dietary advice or encouraging more exercise. Unfortunately, institutions have their own goals, and that includes government itself (the bodies that dole out taxpayer funds) and the public- or private-sector agencies (that allocate these funds). These bodies have little incentive to do things that fall outside their purview, however beneficial or efficient they might be. So if more 'personalised care' is found to be the best way of tackling not only obesity but also, say mild depression, or attention deficit disorder in children, then it's unlikely to be promoted over the diets or drugs that show an immediate, financial benefit to existing organisations.

Our large, complex societies need to take a broader approach; one that rewards social outcomes. Social goals should have primacy over institutional goals. We should reward approaches that solve our social problems, even if there is currently no organisation following that approach.

Enter Social Policy Bonds. Under a bond regime, it is the social goal that's targeted, and we do not asssume that existing bodies can implement the best ways of achieving it. Non-market approaches - such as personalised care - often fall through the cracks. And finding the best approach for a particular problem at a particular time in a particular place needs a suppleness that large, top-down organisations usually lack. Our social and environmental problems need diverse, adaptive approaches. Social Policy Bonds would stimulate the research, experimentation and adoption of the best of these approaches. They would reward people for solving our problems, rather than for simply turning up to work and carrying out an approved activity. They would reward innovative approaches if they are the most efficient and, if current bodies can't implement them, they will give rise to a new type of organisation: ones whose protean composition and structure would be entirely subordinate to their goals - which would be exactly those of society. It's unlikely that existing health bodies in most countries would find room for the sort of sustained, personalised diestary advice that Mr Hobbes mentions. Social Policy Bonds targeting health, on the other hand, would encourage people to investigate such an approach and, if they find it as beneficial as it appears, see that it's adopted.

11 September 2018

The Economist foresees an imminent human catastrophe in the Syrian city of Idlib:

In the battle last year for Mosul, an Iraqi city of [fewer] than 1m[illion], the American-led coalition killed at least 1,000 civilians despite using mainly precision-guided, or “smart”, bombs. Idlib, whose population is three times larger, will face Russian bombs that are almost entirely unguided, or “dumb”, meaning they are quite likely to miss their targets and instead hit civilians. The battle for Syria’s last rebel redoubt looms, the 'Economist', 8 September

Meanwhile Katherine Bourzac writes about research into an innovative way of dealing with the brine generated by reverse osmosis, which would otherwise be dumped into the sea with possibly damaging effects on the marine environment:

[A]llowing forward, not reverse, osmosis [makes] it possible to get more and more water to flow across a salt-excluding membrane into a container of brine, increasing the pressure. That pressurised water can be used to drive a turbine and generate electricity in a process called pressure-retarded forward osmosis. Our thirst for water is turning the oceans saltier, Katherine Bourzac, 'New Scientist', 8 September

The details aren't important. My point is the contrast between the two visions for humanity. On the one hand, we face a human-induced scene of carnage, avoidance of which is assumed to be beyond our capabilities. On the other, we have scientists and engineers researching ingenious ways of improving the environmental consequences of extracting fresh- from sea-water.

Is it too simplistic and naive to think that the immense human costs of the forthcoming Idlib catastrophe outweigh any benefits that might accrue to the competing factions in the Syrian conflict? And, if we accept that, why do we assume that we can't do anything about avoiding them?

The answer, I think, is that our multitudes of political systems aren't fit for purpose. They are incapable of aggregating the wishes of ordinary human beings, and weighting them against the perceived, narrow, self-interest of (in this case) politicians, warlords and arms merchants in Syria and beyond; maybe a couple of hundred guys who could halt the catastrophe, but choose not to. The problem, as we see from New Scientist, is not a lack of human ingenuity. The problem is that, while some of it's channelled into schemes that benefit humanity, far too much is channelled into endeavours you might think of as low priority or - much worse - into creating and prolonging human catastrophe.

We could, and many of us do, sneer at the profit motive as a solution to human problems. There are many, especially on the left, so blinded by ideology that they see monetary incentives as unacceptable ways of solving our human problems. Presumably these people are waiting for some sort of psychological revolution, or deus ex machina* or maybe they feel it more important to belong to a tribe of believers in their bankrupt ideas than actually pay people to solve problems that in their view, shouldn't exist and wouldn't exist if we were all nice to each other.

I don't think we can afford those views. The challenges we face on all fronts - environmental, as well as political and military - are too huge and too urgent. As well, just as teachers (these days) are paid, so too would providing incentives for people to, for instance, eliminate war, bring more people and more resources into that endeavour. Some might become rich by helping eliminate war (is that so terrible?); others might simply earn the same salary as they would say, by advertising pet-food or working as a warehouse person in a plant that manufactures chemical weapons.

For centuries religious leaders, monarchs, ideologues, international organisations and politicians of all stripes have failed to end war. Even now, as with Idlib, we think we are powerless to prevent it. Why does violent political conflict continue to cause untold suffering, despite most people’s deeply-felt wish to live in peace?

We cannot answer these questions now, but I don't think we need to. What we can do is reward peaceful outcomes, however they are achieved and whoever does so. Nobody can possibly identify and remove all the possible causes of violent political conflict. But what we can do is reward the sustained periods of peace and leave it to a motivated coalition to explore potential solutions and implement the most promising ones. Currently, instead of rewarding peace, governments finance activities, or institutions, or programmes, or policies that are supposed to work for peace, but have signally failed to achieve it. The answer, I think, is to make the rewards conditional on the ending of war.

Conflict Reduction Bonds would do this. Backed by governments, philanthropists, non-governmental organisations and the public, possibly under the auspices of the United Nations, they would be issued on the open market for whatever price they would fetch, and would be tradeable at all times. They would be redeemed for a fixed sum only when the number of people killed or injured by violent political conflict reached a very low level. Importantly, the bonds would make no assumptions as to how to bring about greater peace - that would be left to bondholders. Unlike normal bonds, Conflict Reduction Bonds would not bear interest and their redemption date would be uncertain. Bondholders would gain most by ensuring that peace is achieved quickly. The broad effect would be twofold:

More resources would be devoted to achieving the outcome of peace

Market incentives and efficiencies would be injected into every stage of peace building.

Many peace-building bodies, whether public- or private-sector, work in admirable and diverse ways, but their efforts are relative to the size of the problem, small-scale and uncoordinated. For all such bodies, the financial rewards from building peace are not correlated with their effectiveness in actually doing so. This negatively affects not only, as some would have it, the salaries of employees, but their number, the resources they have at their disposal, and their incentives. Conflict Reduction Bonds, in contrast, would explicitly reward movement toward a targeted peace outcome. They would focus on an identifiable outcome and channel market efficiencies into exploring ways of achieving it. They could be the most effective means of achieving the peace that people all over the world yearn for and deserve.

For more on Conflict Reduction Bonds and variants see here.--*Deus ex machina is a plot device whereby a seemingly unsolvable problem in a story is suddenly and abruptly resolved by an unexpected and seemingly unlikely occurrence...Its function can be to resolve an otherwise irresolvable plot situation [or]...to bring the tale to a happy ending.... Source

03 September 2018

Just because we don't know everything about cause and effect, that doesn't mean we throw up our hands in frustration and decide to do nothing. Or, the more common reaction when a social problem becomes inescapably visible: or create ineffectual bureaucracies ostensibly aimed at solving them (climate change, nuclear proliferation) but actually doing very little.

Take armed conflict: it's not difficult to reel off whole screeds of plausible reasons for its occurrence, or
even its inevitability. Poverty, ignorance, despair, and differences of
wealth, ethnicity, religion, class, culture or ideology: all these are
thought to be some of the 'root causes' of war and violence. As also
are: inequalities in access to resources, scarcity and economic decline,
insecurity, the violation of human rights, exclusion or persecution of
sectoral groups, and state failures including declining institutional
and political legitimacy and capacity. Other key foundations for
conflict could be historical legacies, regional threats, the
availability of weapons, economic shocks, and the extension or
withdrawal of external support. Demography is also significant: large
numbers of unemployed males can catalyse conflict.

Sometimes
inward factors are cited; such as individual pathologies; perhaps a
history of being abused that predisposes someone to take up violence in
later life. Often blamed too are the media, and the frequency with which
our children are exposed to images of violence - especially when
violence is presented as an acceptable and effective way of solving
problems.

No doubt all these factors can and do play a part in
fomenting and fanning the flames of conflict. But (1) every 'root cause' will have its own root cause and (2) even aside from the
impossibility of eliminating every potential cause of conflict, there is
no inevitability that these causes will lead to armed conflict. Selective memory
has strengthened these linkages in the collective mind, but for each of
these 'root causes' there are examples that disprove any simple
cause-and-effect relationship. There are, for example, dozens of
countries in which people of different ethnicity and religion live
happily side-by-side.

Perhaps Tolstoy summed it up best:

The
deeper we delve in search of these causes the more of them we discover,
and each single cause or series of causes appears to us equally valid
in itself, and equally false by its insignificance compared to the
magnitude of the event. War and Peace, page 85, Leo Tolstoy, 1867

Searching for alleged root causes, then, might not be the best way of trying to solve a problem. Applying the Social Policy Bond principle could be the answer.For instance, instead of policymakers'
trying to look for and deal with root causes of armed conflict, they could raise the revenue to back Conflict Reduction Bonds. Then it would be up to
bondholders to identify the most cost-effective ways of reducing
conflict. That might involve looking for root causes, but only if doing so will be the most efficient way of achieving the outcome we seek.

As an aside, I'll quote the former Grand Archdruid, John Michael Greer on the subject of astrology :

Why do the
positions of the planets relative to the 30° wedges of the ecliptic that
astrologers call the zodiacal signs, and the position of these relative
to another set of wedges of space, the mundane houses, which are
calculated from the point of view of the observer, predict the future?
Why do those 30° wedges have the effects they do, even though the stars
that occupied those wedges in Babylonian times have moved on due to the
precession of the equinoxes? And why should the chart cast at the
moment of the spring equinox of 2019 in London provide insight into how
Britain will fare through Brexit? There’s a simple answer to this, which is that nobody knows.
Astrology didn’t come into being because somebody decided to cook up an
elaborate theory about planetary influence. It came into being because
people who watched the skies in various parts of the world in ancient
times noticed that certain relationships among those little bright dots
in the night sky provided reliable advance warning of certain events
down here on Earth. An astrological interlude, John Michael Greer, 29 August (my emphasis)

My point: the important thing is to solve problems, not try to work out why they have arisen. It might be a good idea to look for root causes, but it might be more efficient instead to aim for the outcome that we want without doing so. Trying to understand fully the relationships between cause and effect may be a waste of time, or actually delay and impede the achievement of our social and environmental goals. Outcomes are more important than theory, whether we are talking about ending war or predicting the future.

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Social Policy Bonds

See the Social Policy Bonds website for overviews and links to articles, papers, news and more about Social Policy Bonds. Click on the image in the panel below to download a 2400-word article published by the Institute of Economic Affairs, London.

Social Policy Bonds in 2400 words

Social Policy Bonds in the media

25 May 2018: a short article on Social Policy Bonds and their possible application in India, appears on Market Express (India). It is by Dr Ashok V Desai and titled Incentivizing welfare.

9 October 2015: An article by Greg Bearup on the genesis of the Social Policy Bond idea, and application of a version of it in Australia appears in the Weekend Australian Magazine. (The article can also be downloaded as a pdf from here.)

October 2013: Professor Robert Shiller of Yale University, is named as one of the three winners of the 2013 Nobel Prize in Economics. His Nobel Prize lecture (pdf) delivered on 8 December, mentions Social Policy Bonds. Professor Shiller has for many years encouraged my work on Social Policy Bonds, beginning in late 1996 when he sent me this letter.

3 May 2012: An audio talk by Nobel Prize winner Professor Robert Shiller at the London School of Economics, in which Social Policy Bonds are briefly mentioned, is available here.